Free run on overseas dollar-play

MUMBAI: In the run-up to the firming up of another report on moving towards capital account convertibility, corporates have been given more leeway, on outward investment.

According to the new changes in the existing regulations announced by the RBI on Monday, the scope of guarantees which corporates can issue under the automatic route, has been expanded.

They can now offer, any form of guarantees ��� corporate, personal, primary or collateral guarantee by the promoter company or by a group company, sister concern or associate company in India.

This would be subject to the condition that all financial commitments including all forms of guarantees are within the overall prescribed ceiling for overseas investment of the Indian entity.

The ceiling now is 200% of the networth of the investing company. So far, only promoter companies were allowed to offer guarantees on behalf of their wholly owned subsidiaries or JV.

The liberalisation of the auto route for disinvestment by domestic companies having investments abroad implies that Indian firms can disinvest in their overseas firms without prior approval of the RBI in certain categories.

These would cover cases where the JV or wholly owned subsidiary is listed on the overseas stock exchange, where the Indian promoter is listed on a stock exchange here, and has a networth of not less than Rs 100 crore.

Divestment without prior RBI approval can also be done where the Indian promoter is an unlisted company and the investment in the overseas venture does not exceed $10m.

Star exporters with a proven track record and consistently high export performance would also be in a position to benefit from these norms.

Established proprietorship or unregistered partnership exporter firms would be permitted to set up a JV or wholly owned subsidiary outside the country without obtaining prior approval of the RBI.

This would be subject to certain eligibility criteria such as being a DGFT recognised star export house with exports exceeding Rs 15 crore annually.

The amount of investment outside India should not exceed 10% of the average of three year export realisation, that is 200% of the net- owned funds of the firm, whichever is lower.